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Consumer Loan Response to Permanent Labor Income Shocks: Evidence from a Major Minimum Wage Increase

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  • Guney, Ibrahim Ethem

    (Central Bank of Turkey)

  • Hacihasanoglu, Yavuz Selim

    (Central Bank of Turkey)

  • Tumen, Semih

    (Amazon)

Abstract

We investigate the impact of a substantial minimum wage increase, which became effective in January 2016, on consumer loans in Turkey. Using bank-level data and designing an original identification strategy, we ask whether the loans provided by banks with a historically high share of low-wage loan customers have increased relative to those provided by banks with a historically low share of low-wage loan customers after January 2016. Our results suggest that consumer loan flows have displayed a limited but statistically and economically meaningful increase following the minimum wage hike. This increase mostly comes from the increase in long-term general-purpose loans. Vehicle loans have also increased, while there is no change in housing loans. In the overall, the minimum wage hike has generated a moderate and transitory increase in the flow of consumer loans extended to low-wage earners in Turkey – perhaps due to delayed consumption effect. Consumption of durables, which can further increase household borrowing capacity through collateralized debt channel, has only slightly and temporarily increased. The underlying long-term trends in the stock of consumer loans have hardly changed.

Suggested Citation

  • Guney, Ibrahim Ethem & Hacihasanoglu, Yavuz Selim & Tumen, Semih, 2017. "Consumer Loan Response to Permanent Labor Income Shocks: Evidence from a Major Minimum Wage Increase," IZA Discussion Papers 10751, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp10751
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    More about this item

    Keywords

    consumer loans; labor income shocks; minimum wages; triple difference;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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